GAP Stores in Brazil: Higher Prices, Lower Margins (The Story of a Brazilian Fool)

(translated from an article written by Rodrigo Constantino, via Veja).

In the series “Are Brazilians Fools?”, I showed several cases in which we pay much higher prices for the same products sold abroad. Some people think that this is due to higher profit margins in Brazil. Even if it were, we’d need to explain why. And again we find the visible hand of the State creating barriers to free competition.

But if some sectors are able to create their own “cartels” with the help of the government, others are more competitive, and the difference can not be explained by the artificial obstacles created by the government. In fact, the difference is the tax burden and the poor logistics (infrastructure), raising the prices of the the products we consume: the famous “Custo Brazil” (Brazil’s cost of doing business).

The recent comments by the clothing retailer GAP, which has just opened its first store in Sao Paulo is a proof of that. The company acknowledged that it will have lower profit margins in the Brazilian operation, and yet the price is 30-40 % higher than in the United States:

“After six years analyzing the Brazilian market, the American fashion retailer GAP opens today its first store in Brazil, at JK Iguatemi Mall. “Needless to say that Brazil is complex and complicated,” said Stefan Laban, GAP’s senior vice president. “But because of the importance of the market, we made a very conscious decision to reduce our margins.” The executive does not reveal their margins on the operation but says it will be lower than in all other countries in which the brand operates. Even so, due to import costs and logistics, prices in Brazil are on average 30 % to 40 % higher than in the U.S.”

Well, it is not easy being Brazilian. The Americans, who earn on average four times more, can spend much less to have the same product. And it’s not about to affect only the rich capitalists or consumerist. We’re talking about commodities, a simple GAP shirt, something that even
“leftists” love.

“Caviar Leftists”… let’s put it that way. Like the “rebellious” youth that became famous for protesting against capitalism and the Yankees … wearing a GAP sweat shirt! Below is the picture circulating out there:

As we can see, even the rebellious “caviar leftists” will have to shell out 40% more than the rebellious American leftist (even though it might be money coming from his mommy’s weekly allowance). And then I ask: Aren’t we all Brazilian fools?